Kurdistan's Covert Back-Channels

How an ex-Mossad chief, a German uberspy, and a gaggle of top-dollar GOP lobbyists helped Kurdistan snag 15 tons of $100 bills.

In June 2004, journalist Seymour Hersh reported in the New Yorker that Israelis operating in northern Iraq under the guise of businessmen were in fact cultivating Kurdish proxies to gather intelligence in preparation for possible future action against Iran. About the same time, I too was hearing about Israelis operating in Kurdish northern Iraq. First, from a former senior American diplomat who was invited by an Israeli American businessman to advise the Kurds on how to get billions of dollars they believed they were owed from the Saddam Hussein-era United Nations Oil-for-Food program. The diplomat gave me the Israelis nameShlomi Michaelsand phone numbers for Michaels in Beverly Hills, Turkey, and Israel. The diplomat had walked away from the project, put off by Michaels temper, and also, he said, by doubts about what Michaels was really up to, and who he might really be working for.

So I was intrigued when, last summer, I read in the Israeli newspaper Haaretz that Shlomi Michaels had become the subject of an Israeli government investigation for allegedly operating in Iraq without the required authorization from the Israeli authorities. Not only had I known about Michaels for two years, I had spent about as long trying to understand if the Bush administration would embrace the regime-change policy of its Iran hawks, who believe that the solution to Irans nuclear ambitions is to promote mass uprisings of ethnic minority and dissident groups such as the Kurds.

For much of the past year, I have been digging into the story of Shlomi Michaels operations in Kurdistan, and his connections in Israel, the United States, and around the world. My investigation took me to Israel early last fall, shortly after the Israeli war with Hezbollah, to talk with Israeli officials investigating Michaels, as well as one of Michaels long-time American associates, and Michaels business partner, the former Mossad chief Danny Yatom.

What I found was not the story I had expected. Instead of Michaels being part of a covert operation to set up anti-Iranian proxies in Kurdish Iraq, I discovered that Michaels and his associates were part of an effort by the Kurds and their allies to lobby the West for greater power in Iraq, and greater clout in Washington, and at the same time, by a group of Israeli ex security officials to rekindle good relations with their historical allies the Kurds through joint infrastructure, economic development, and security projects. It was, in other words, a story about influence-building, buying, and profit, albeit with subplots that were equal parts John le Carre and Keystone Kops, and a cast of characters ranging from ex-Mossad head Yatom to a former German superspy, with Israeli counterterrorism commandos, Kurdish political dynasties, powerful American lobbyists, Turkish business tycoons thrown innot to mention millions of dollars stashed in Swiss bank accounts.

Yatom met me in the lobby of the Tel Aviv Sheraton at 7:30am on a Sunday, the beginning of Israels work week. The ex-Mossad chief turned Labor Party member of parliament was on his way to his office at the Knesset after a stop at the gym, dressed casually in a white button down shirt and black jeans. He spoke openly about his business relationship with Shlomi Michaels and the Kurdish venture theyd developed together, noting that he was no longer involved in its operations; after being elected to the Knesset in 2003, hed put his business interests in a blind trust, as required by Israeli law.